The Pressure of a Post-Covid Market

      The global shock caused by the COVID-19 pandemic has reverberated across most industries, and the aviation sector is no exception. Established norms and industry standards have undergone significant shifts in the aftermath of the pandemic. This is particularly evident in the aircraft market, where prices have surged, parts have become more challenging to procure, a "pilot shortage" has emerged due to an increase in airline hiring, and used aircraft are often commanding higher prices than their brand-new counterparts.

      The private aircraft market experienced an unexpected boom in the wake of COVID-19, with both chartered flights and aircraft purchases witnessing a substantial uptick. One prominent brokerage company reported a 50% surge in sales during the second half of 2020 compared to the previous year. Want to buy a brand-new airplane? There can be a two year wait for some of the most popular models like the Pilatus PC12 or Embraer Phenom 300.

      This frenzied atmosphere has compelled some aircraft buyers to forego pre-purchase examinations and procedures that would typically be deemed essential. Skipping a pre-purchase inspection is a risky move that can have severe repercussions for an aircraft's present and future value.

      A pre-purchase examination is designed to identify "big ticket items" that could significantly impact an aircraft's value. These issues often revolve around the aircraft's engines or corrosion within the airframe. Engine overhaul or replacement costs can constitute a substantial portion of the aircraft's value, and corrosion within the airframe can render the entire aircraft worthless.

      Some buyers of piston aircraft will substitute a prebuy examination with an annual inspection, but this is not good practice. Annual inspections focus on the current airworthiness of the aircraft. In contrast, pre-buy examinations are geared towards assessing the current and future market value of the aircraft. There are items that a prebuy will look at that an annual inspection will not. For example, during an annual inspection, there is no requirement to borescope the engine cylinders to check for corrosion or malfunctions, but this should absolutely be done on a prepurchase examination.

      For turbine aircraft, it is more common to have a manufacturer’s required inspection substitute for a prebuy. Additionally, modern day “engine programs” act as insurance policies for turbine engines, alleviating concern for engine defects. Older turbine aircraft, however, may not be on engine programs and the entire value of the aircraft may be based on the remaining life on the engines. In this case, engine borescopes should be considered critical. Lastly, test flights should always be conducted to verify proper operation of aircraft systems.

      In the current market scenario, aircraft may be on the market for just a few days before being placed under contract, and some highly coveted models may change hands without even being publicly listed. In such a competitive market, having a well-organized acquisition team before initiating the aircraft search is important. This team should ideally comprise a broker, tax consultant, legal consultant, maintenance consultant, and an aircraft manager. Having this team in place will ensure the right aircraft is purchased at the best price with a smooth transaction process.